Debt.

I have been having another think about this. I have been wondering about the obstinacy of the committment to the austerity programme in the face of all he evidence that it does not work. It is incomprehensible if you accept that the main players are honest, frankly. I do not accept that any more.

Think about what is happening. As we have seen, Ireland followed the orthodox path prescibed my the neoliberals in every respect, if you are thinking about the government. Their problems stem entirely from the debt they took over from fraudulent and irresponsible banks. When they could not sustain that level of debt they accepted the demands of the IMF and other institutions to impose austerity measures and every person in Ireland is suffering as a result.

If the IMF and the ECB wanted to solve the problem what would they have done? Given that the interest such countries have to pay on their debt is a major reason why that debt is rising, it is obvious that needs to be dealt with, surely? Now consider how that works.

Governments raise money by issuing bonds. They are essentially getting a loan from the market and they have to offer an interest rate which persuades people to buy those bonds. The level of interest required to do that is dependent on what has happened to previous bond issues after they have been made. I think I have gone over how this works before, but no matter how often I think about it I cannot see the justice in what is done. I cannot see the sense in the IMF/ECB response, either.

Imagine you are a householder. You have bought a house which cost rather more than you can easily afford, and so you have no money left to buy furniture. If you have to save up for it you are not going to have a cooker for about 5 years. But the small amount you can save can be used to pay a loan taken out for that cooker, and you still have a little left to save for contingencies. So that is what you do:you take out a loan for the cooker. This is not a ridiculous decision. The lender looks at your finances and he decides he will lend you the £500 you need at 3% interest. You will repay it over 5 years. Everybody is happy.

You duly make your repayments every month. You don't default, though you are struggling a bit. It happens that your son also has a debt: he took it out to buy a bike when he was student. That was sensible cos it meant he could cut his transport costs and he had enough from his student loan to make the repayments. But he had no income apart from the loan so the lender demanded a guarantor. You signed.

Your son now leaves university and he can't get a job: he does not have enough income to pay his loan. He defaults and because you were guarantor you are now responsible for the debt, which is £100. You pay that too.

Your fridge breaks down. Again you do not have enough in savings to buy a new fridge outright: but you do have a little income you manage to save each month and so you can service another loan. You go to the lender and you ask for a loan assuming the interest will be 3%.

At this point you discover that your lender "lost confidence" in you when you took responsibility for you son's loan. And he sold your debt to someone else for £400. What that means is that the new owner of your debt is getting a higher rate of interest: he gets 3% of £500 but he only paid £400 for that. So he will not lend to you at 3% now: he will only lend at the new rate.

The analogy does not quite work because you only have two debts and two creditors; but for a country there are many and the debt is sold many times. It is sold for less than face value, however,and that is directly comparable. And if those bonds are effectively yielding a higher rate of interest lenders will demand at least that rate to buy new bonds: because they can buy existing ones at that rate on the market.

The reason they can do that is the loss of confidence in you ability to repay. Remember you have not defaulted at any point. This is crystal ball gazing, though it may be fairer to call it "educated guessing".

So if the ECB/IMF etc actually wanted to solve the problem they would guarantee your debt. That is what central banks do: and they can because they can print money. The only institution which can do that in the eurozone is the ECB. And they refuse. Giving you new loans is not going to solve the problem: it makes it worse, because the problem is disbelief in your ability to repay. Although the loan from the IMF may be at a lower rate of interest, thus cutting your outgoings a bit, you still have more debt. That makes no sense at all. The quid pro quo for cheaper loans is austerity: you have to stop buying electricity. That means your house is going to deteriorate over time faster than it would otherwise, and it also means you will get sick more often and so lose your income from time to time: so you will be even less able to service your debt. So the lenders do not get more confidence just because your repayments fall a little bit. So they won't lend. And so we go round the vicious circle.

To me it seems to follow that the IMF/ECB/World Bank do not actually want to solve the problem: they only want to appear to do that.

So what are they trying to do? Who knows? But what we do know is that the actual outcome is a drop in wages, pensions and employment rights. Since that is always the outcome it is not unreasonable to conclude that that is the actual aim. Or so I think